Friday preview: Beazley half-year profits expected to tumble

Friday should end the week in fairly quiet fashion with FTSE 350 results only expected from insurer Beazley and economic data for the UK on public sector borrowing.

Beazley is due to release first-half results that are expected to be quite weak due to lower investment income, despite a benign period for catastrophes.

Analysts at UBS forecast profit before tax of $112m down from $159m a year ago, with investment income declining to $5m from $79m, driven by mark-to-market losses. Gross written premiums are forecast to grow 12%.

"Trading on 2.9x 2018E TNAV, the valuation leaves little margin for error."

Broker Peel Hunt also estimated a sharp decline will be reported from investment losses and lower reserve releases pressure earnings, pencilling in a 65% fall in PBT to $55m, including $54m of investment marked to marked in the bond portfolio as interest rates rise.

"Our adjusted PBT of $112m is a better reflection of underlying trends; this is down 10% yoy as the smoothing effect of reserve releases reduces following last year's catastrophe losses. We believe the [combined operating ratio ] will slip from 90.5% in H1 2017 to 94.4%. The comparison base should improve in H2 2018 assuming a non-repeat of the active hurricane season in 2017."

Peel Hunt sees Beazley as "a good business and remains a consensus favorite; however, we believe a punchy valuation (P/TNAV 2.8x 2018E) is not supported by underlying 14-15% returns and a low basic yield (2.0%)."

In UK macroeconomic news, public sector net borrowing will be updated after falling 26% over the first two months of the year.

HSBC pointed out that this means it could rise by 7.3% for the remaining 10 months and still meet the Office for Budget Responsibility’s full-year forecast.

"Of course, the data are subject to heavy revision, but it seems as though the 2017/18 outperformance – the deficit fell from 2.3% of GDP to 1.9% last year – is still ongoing. We look for another sizeable y-o-y fall in borrowing in June to £5.0bn."

Friday July 20

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Impax Asset Management Group, RWS Holdings, Zytronic

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Current Account (EU) (09:00)

Producer Price Index (GER) (07:00)

UK ECONOMIC ANNOUNCEMENTS

Public Sector Finances (09:30)

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Record

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3i Group, Air Partner, Capital Gearing Trust, First Derivatives, Helical, Northern 2 VCT, Northern 3 VCT, Octopus AIM VCT, Premier Technical Services Group , ProVen Growth & Income VCT, ProVen VCT, Severn Trent, Telford Homes, Tex Holdings, Veltyco Group , Warpaint London , Wynnstay Properties